The production cuts may have erased the surplus, but for how long?

Stored petroleum around the world fell through 2017 and the first quarter of 2018, ending a period of oversupply in the global market that began before OPEC began production cuts in November 2016, according to data from the EIA.

The production cuts took effect in January 2017, reducing supply by 1.2 MMBOPD (compared to October 2016 levels) and limiting total OPEC production to 32.5 MMBOPD. Russia joined in by agreeing to reduce its crude oil production, and OPEC eventually extended the agreement a year later, in November 2017. Extension of production cuts has resulted in steadier oil prices gliding upward on a smooth increase.

The decrease in production eventually caused the global market to balance. Crude oil and other liquids inventories declined after a long stretch of steady increases from mid-2014 through most of 2016.

Inventories Back at Five-Year Averages—for Now

According to the EIA, from January 2017 to April 2018, OECD inventories decreased by 234 million barrels. The U.S. accounted for more than half of that decline, as U.S. crude oil and other liquids inventories decreased by 162 million barrels over that period. By the end of April 2018, both OECD and U.S. inventory levels were lower than the five-year averages, for April 2013–April 2017.

Inventories Back at Five-Year Averages—for Now

OPEC to reconvene on June 22

On May 25, 2018, Saudi Arabia’s energy minister said OPEC and Russia could together increase production by approximately a million barrels. Reacting to comments from the Saudi oil minister, crude oil prices fell by about $5 per barrel in total over a few days, but the positive price trajectory returned on May 30.

EIA sees a return to surpluses on the horizon

The EIA forecasts that the tightening trend in global petroleum markets will soon reverse, with both U.S. and OECD inventories returning to surpluses, compared with their five-year averages (although on a smaller scale compared with 2015–2016).

As to the weekly reports of U.S. inventory levels by which you could almost set your watch every Wednesday, the EIA said it will release both the crude oil and the natural gas reports on Thursday instead, a result of the Memorial Day holiday this week.

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